Is Amazon a “Monopoly” (Or Is The Publishing Industry Too Loose With Its Words)?

In the ubiquitous, and increasingly annoying, coverage of the Amazon–Hachette dispute, it’s common for those who side with Hachette to assert that Amazon is a “monopoly” without really understanding what that word means.* One example is Steve Wasserman’s chicken-little-esque op-ed that appeared in The Nation (online) earlier this month. He claims, “the Obama Justice Department, seemingly mesmerized by visions of a digital utopia, is oddly blind to the threat to publishing posed by Amazon’s growing monopoly.”

In response to Wasserman’s op-ed, which calls for the U.S. Department of Justice to investigate Amazon, Max at Litigation and Trial* explores what a monopoly is:

A “monopoly” is when one supplier of a particular product or service is able to control the market. That does not remotely describe Amazon: the vast majority of books sold by Amazon are supplied by someone else, i.e., the publisher, and those same books are available elsewhere…

A “monopsony” is when one buyer of a particular product or service is able to control the market. (Consider, for example, if there were several commercial airplane manufacturers, but only one commercial airline.) “Monopsony” is potentially a better fit for Amazon than “monopoly,” because Amazon’s real pricing power is that it can push a hard bargain with publishers when it buys the ebooks, whereas with consumers Amazon sells the books at or below the prevailing market prices. …

In a monopsony, the monopsonist refrains from buying to force the suppliers to start discounting against one another (because there are no other buyers), until they are no longer making a profit. That simply isn’t the case here. First, the publishers have total control over where they sell their ebooks, and they exercise that power: the “Big Five” chose to not participate in Amazon Unlimited. Second, the ebooks are available all over the place, like Walmart and Target.

So, Amazon is not a monopolist or a monopsonist, nor did it engage in predatory pricing. As Max reminds us, the U.S. Department of Justice responded to complaints (from Barnes & Noble, the Authors Guild, and others) about Amazon in 2012, finding that “[s]ome of the criticism directed at Amazon may be attributed to a misunderstanding of the legal standard for predatory pricing.” Meanwhile, Hachette was one of the five publishers sued by the Justice Department that year for antitrust violations.

Most of the criticism about Amazon is fueled by misunderstandings and emotion, not common-sense, facts, or information about the legal or economic context of the Amazon-Hachette dispute. These are two big for-profit companies. Amazon is under no obligation to sell books from all publishers, and Hachette is under no obligation to sell its books through Amazon. In fact, those who are wary of Amazon’s growth should actually side with Amazon in this dispute and stop buying Hachette books through Amazon, thereby encouraging Hachette to continue to sell its books elsewhere and to increase Amazon’s competition. That’s how the market should work.

*The details of the dispute remain vague, but it’s presumably a fight about e-book prices. Hachette and Amazon haven’t agreed on the terms, so Amazon hasn’t been loading its inventory of Hachette books as fully and hasn’t been offering pre-orders. Hachette books are still available through numerous other retailers because Amazon isn’t actually a monopoly.

**Max’s full post, which contains greater detail on these issues, is available here.

I learned a new word, monopsonist. Thank you. Every though the word monopoly is specific in meaning, there are quite a few companies with such a lion’s share of a market that is does make it difficult for independents out there. Look at what Walmart does in certain economically depressed areas. Sure, many other big retailers would consider it foolhardy to enter certain demographics, but the mom and pop markets are pushed right out of business and all is left is Walmart for shopping.

Huh, this is super interesting! I’ve not been following the case closely, but it’s impossible to avoid everything about it. I hate it when they call Amazon a monopoly as well. Even with my limited understanding of monopolies, I can tell Amazon is not one. Thanks!

I know one thing: without Amazon, I wouldn’t sell many books. They are by far the largest retailer of my titles. I decided to take a giant step back from the Amazon/Hatchette thing and wait to see what happens. It’ll probably end exactly the way it’s supposed to.

I was planning to keep my mouth shut about the Hachette-Amazon dispute until I saw the Wasserman op-ed and Max’s response to it. I’m so tired of hearing people tied to the publishing industry (as Wasserman is) label Amazon a “monopoly.” I’m wary of Amazon, just as I’m wary of all large corporations, but it doesn’t deserve baseless criticism.

Reblogged this on DailyHistory.org and commented:
Today, the Chronicle of Higher Education has an article by Jennifer Howard about how university presses are forced to tread carefully with Amazon. While Amazon boosts sales, it is also extremely difficult for small university presses to negotiate “over e-pricing and other issues.” As the largest seller of books, it is not surprising that Amazon accounts for approximately a third of most university press sales. Additionally, Amazon makes it easy for scholars to get books especially difficult to quickly get even from university libraries. More than one scholar has ordered a book from Amazon instead of waiting for an interlibrary loan.

Still, university presses are intimidated and somewhat overwhelmed when they negotiate contracts with the massive online retailer. Presses are expected to agree to discounts, pay money to Amazon to get their books promoted, and accede to e-book prices that work for Amazon. University presses have little choice deal with Amazon very carefully. Unlike Hachette Book Group, university presses are incapable of challenging Amazon the same way.

This dovetails nicely with this post at that the Misfortune of Knowing that asks whether Amazon is a monopoly. Hachette Book Group is currently negotiating with Amazon over discounts demanded by the retailer to sell their e-books. Publishers have thrown around terms like monopoly and monopsony when describing Amazon. A.M.B. argues that in the Hachette case, Amazon appears to be neither a monopoly or a monopsony (a buyer that is powerful enough “force suppliers to start discounting against another.”) In many ways, university presses face the same pressures as Hachette, but they have fewer options. Ultimately, Hachette will probably be forced to agree to Amazon’s demands because there are fewer and fewer alternatives to Amazon everyday.

One of the most interesting aspects of the growing rift between publishers and Amazon is it highlights how publishers essentially ceded control of the publishing business to Amazon and Apple. Publishers no longer control the technology of books because they never created a Kindle or successful e-reader of their own. It was the booksellers (Amazon, Barnes & Noble, Apple) that created e-readers instead publishers. Instead of selling hardware (books), publishers are now in the software business (e-books). When they lost control of the hardware that books are read, they lost the ability to control their own fates. In many ways, the publishers dilemma is identical to the predicament faced by the music business. Unfortunately, publishers are probably facing a similar future to the record companies unless they take control of their businesses.

This is a very interesting comment. I don’t think Hachette *has* to agree to Amazon’s terms to ensure its survival. They are a large publisher with authors (like JK Rowling) who can attract readers to an Amazon competitor. They could also sell ebooks directly without controlling the hardware. There are many types of e-readers, and some (maybe most?) read files from multiple sources.

I’m worried that Hachette along with other book publishers are following down the same path as the music companies. Amazon is pursuing the same strategy Apple did with music. Apple charged $0.99 regardless of the band and Amazon wants all e-books to be $9.99 regardless of the author or publisher. Just as music companies relied on the Brittany Spears $15.99 CD, book publishers survive because the can charge $29.99 for a brand new bestselling hardback.

While there are other e-readers, most command very little market share. Amazon currently sells 60-65% of all e-books. If Amazon ultimately strong arms Hachette into the $9.99 price, Hachette stands to lose a huge amount of money as sales shift from new hardbacks to e-books over time. If Hachette decides to forgo selling e-books on Amazon, they are left with only 35% of the e-book market (basically Barnes & Noble and Apple) to sell to.

Amazon is also the largest bookseller in the United States. As part of its agreement with Amazon, Hachette is also agreeing how much money to pay Amazon to market their books on the Amazon site. Publishers currently pay Amazon to make sure that their books get well-placed on the Amazon Books homepage and on other places (Children’s Picks, Summer Reading, Book Club Pick’s, etc.) Amazon could potentially bury Hachette’s books on its site and make it difficult to discover Hachette’s old fashioned books on their site.

Most of the music companies are shadows of themselves (if they exist at all) and I’m concerned we may see the same situation repeat with publishers. The situation for book publishers is marginally better (piracy is a much smaller problem, at I think it is), but they still depend on one company to sell a big chunk of both their regular and e-books. While Apple dominated digital music sales, it never sold the tangible version of music (CDs).

I should note that I actually love my Amazon Kindle and I’m more conflicted over than I was about iTunes (I had very little sympathy for the music companies). I also agree that Amazon isn’t monopoly or monopsony (great word) or a big scary evil corporation. I’m just surprised that book publishers business didn’t learn anything from the decline of the music business.

That’s a good point about the hardware, an issue where our broken patent system likely plays a role. It’s hard for small companies to get their foot in the door, given the thousands of patents potentially applicable to any electronic content devices. At the same time, though, the ebook device market is pretty darn competitive — the Kindle is cheap and accepts industry-standard ebook formats, and there are hundreds of tablets and the like that will do the same (and this is all not even mentioning the iPad and iPhone) — so I don’t think this is what really motivates the publishers to agree to Amazon’s terms.

To me, the biggest reason is promotion. There’s nothing stopping publishers, even small publishers, from selling their books in all kinds of places, and even selling them directly online, and yet the keep falling over themselves to stay in Amazon’s good graces. Why? IMHO, the only explanation can be: they don’t think nearly as many people will buy their books unless Amazon recommends it to them. The publishers either don’t want, or don’t know how, to market their books, and they’d prefer the carnival deliver sales to them at random.

I think this is a rather foolish perspective, and will lead to their eventual decline anyway. Just as an online merchant should not build their business around good Google rankings, a book publisher should not build their business around good Amazon recommendations. Publishers should take a hard look at why they’re unable to convince consumers to buy their books unless Amazon serves them up on a silver platter.

“Most of the criticism about Amazon is fueled by misunderstandings and emotion, not common-sense, facts, or information about the legal or economic context of the Amazon-Hachette dispute.”

That about sums it up. Brilliant post. To me, “monopoly” has joined the category of “big, scary monster words” that gets bandied about like Hitler and the Nazis in Internet conversations (see http://en.wikipedia.org/wiki/Godwin's_law). It’s a cheap way to get people riled up. All anyone has to do to absolve themselves of the word’s true meaning is to put a tag in front, such as “virtual” or “near.”

Thank you! I have to credit Max for teaching me what a monopsony is. I agree that “monopoly” has become of those big, bad words, and it really bothered me to see Steve Wasserman use it in The Nation (quite frankly, I’m surprised any publication would disseminate Wasserman’s op-ed without demanding that he check his facts).

This is a topic I remain mum on most of the time if only because I agree with what you’ve said here, which isn’t the most popular view out there, I’m afraid. At least in the circles I am in. Or perhaps it is more a matter of those who are very passionately anti-Amazon who speak the loudest and make it seem that way.

I am not familiar with business law and marketing, and so really have only the vaguest ideas of what is going on. I do not agree with all of Amazon’s practices (not necessarily related to this), but I also do not agree they are the big Bad Guy out there either that some want us to believe either.

Other than a brief comment in one of my previous Amazon posts, I had decided to keep my mouth shut on the Hachette dispute until I saw the baseless Wasserman op-ed in The Nation and Max’s response to it. I’m wary of Amazon–I’m wary of corporations in general–but I’m tired of the myths fueling the discussions I’ve seen about Amazon. Thanks for stopping by and for sharing your thoughts!